Contracts: legal documents or business assets?

During a panel discussion for third-year law students at Ghent University, the following question was asked: is a contract mainly a legal document or rather a business document?

About 80% of the attendees felt that a contract was primarily a legal document, created to mitigate risk. Only 20% considered it primarily a business document in which the practical and commercial agreements are determined. The question actually made a correct answer impossible, because a contract is of course both.


Lawyer or legal counsel: a totally different ballgame

In the third year of law, no distinction is made between who will work as a lawyer or who will opt for a career as a legal counsel. When it comes to contracts, however, we see a very clear dichotomy between the two profiles. Let’s say the lawyer is acting as a firefighter, while the company lawyer serves as a prevention advisor.

To put it simply, the lawyer will put his or her focus on eliminating or at least limiting the client's risk, or trying to get the most out of a possible issue.

The main objective of the in-house counsel will be to protect their organization against major risks, and at the same time, to hinder or delay normal business processes as little as possible.

The legal counsel as prevention advisor?

The challenges of a prevention advisor and a company lawyer have many similarities. Potentially you can be involved in all aspects of the business: corporate governance, purchase and sales contracts, GT&C, projects, distribution and licence agreements,... In reality, however, you are often alone or with a small team, so you do not have the resources or time to have a say everywhere (if you even wanted to).

Too often, we also witness situations where the expectations of legal counsels concerning contract management are wrong. Let's be clear: as an in-house counsel, you are not the person responsible for the contracts, you are not the 'contract owner'— unless maybe if we’re talking about the engagement letter you have with your external advisor(s). Most certainly, you are not the only source of information people should turn to to simply find a contract, or to find out what exactly has been agreed on.

Then where does the responsibility for a contract lie? Simple: as close as possible to the business, to those people who know and understand why the contract was ever necessary in the first place.

Rapid risk mitigation

As an in-house company lawyer, you want to be the advisor who helps the company keep all contract risks under control, to avoid problems, and above all, to be more of a facilitator than a show-stopper on the functioning of the business.

The only way you can achieve this is by:

  • having clarity about who is responsible for what.
  • getting clear processes in place and make them as simple as possible.
  • have clear standards, including with regard to permitted deviations.
  • being involved early enough when it comes to non-standard terms or contracts.
  • using technology that facilitates collaboration with colleagues.

When you have realized the above, then, as a legal counsel, you 

  • can focus on the exceptions, 
  • be confident that you will be involved in those exceptions early enough and 
  • have insight into how those standard and non-standard contracts are managed in your organization.

Who takes care of the technology?

Who is best placed to roll out technology, processes and structure in the organization? As a legal counsel, you probably didn't see much of this during your training. That will be the same for your CFO or purchasing manager. The good news is that there’s an increasing amount of parties that do has a lot of experience with this and can assist you from both a legal and a business perspective. 

In terms technology, it's especially important to differentiate attorney software versus in-house legal counsel software, for all the reasons you've read above.

Contract Management Software is made to be used throughout the organization, to keep the responsibility decentralized, but at the same time to give you an overview of the operation and the exceptions. A high-performance contract management tool automates and facilitates internal processes as much as possible to increase efficiency and minimize error margins.

If we look at software for lawyers, we see that it is mainly based on having files managed by lawyers. And that's a totally different ballgame…


Want to read the complete Legal Counsel Manifesto?

Fill in your details and discover why legal is not responsible for contracts.